REUTERS / Danny Moloshok
- Bank stocks fell on Friday after the Federal Reserve capped dividends and banned stock buybacks until at least the end of the third quarter.
- Goldman Sachs and Wells Fargo fell more than 5%, while Bank of America, JPMorgan and Citibank fell between 3.9% and 4.4%.
- The Fed implemented the restrictions to preserve banks’ capital in the event that the coronavirus pandemic worsens.
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Bank stocks fell on Friday after the Federal Reserve announced new restrictions on dividends and share buybacks on Thursday.
Goldman Sachs and Wells Fargo fell between 5% and 6.5% at 10:18 am ET. Bank of America and JPMorgan, Citigroup also fell about 4%, while Morgan Stanley shares fell 3.2%. The S&P 500 fell 1.5%.
The Federal Reserve banned banks from buying back shares until at least the end of the next quarter and limited third-quarter dividends to the amount paid in the second quarter. It also introduced a formula for paying dividends based on bank income.
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The central bank extended the limits after its annual stress test found that some banks would approach their minimum capital requirements if the coronavirus pandemic worsens. It will also require banks to resubmit and update their capital plans later this year to reflect current tensions.
America’s largest banks have already suspended buybacks since March, and limits on their dividend payments have been a hot topic in recent weeks, meaning the Fed’s moves were not a complete surprise.
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However, investors like Warren Buffett are unlikely to receive lower dividends and delayed buybacks.
Buffett’s Berkshire Hathaway conglomerate has Bank of America, Wells Fargo and JPMorgan among its top 10 holdings, and still owns a $ 300 million stake in Goldman Sachs after selling most of the position in the first quarter.
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